Strong Opinions @marksbirch

When I hear someone espouse the evils of outsourcing and startups, I just laugh.  This mostly comes up in conversations about outsourcing one’s tech and product development to outsourcing companies (check out Vivek Wadhwa and Mark Suster respective posts).  The arguments are compelling and cogent particularly when you are building something innovative and need to iterate quickly.  It is also old-school, backwards looking thinking.

The truth is that we already outsource quite a bit of our startups from the very beginning.  I never recommend entrepreneurs file their own taxes or draft their own funding documents (though you still need to understand what is going on as Chris Dixon’s post drives home).  Most startups hand over PR and design responsibilities to outside firms or contractors without a second thought.  In fact, startups are also outsourcing quite a bit of their “tech” outright to Amazon, Heroku, Saleforce and other platform-as-a-service firms (as was painfully apparent with the Amazon EC2 outage this past April).

Yet, we rage against the outsourced startup, and it is time to stop the nonsense.  There are plenty of startups that are succeeding by leveraging outsourced technology.  I believe this is going to be an ongoing trend as the pipeline for high quality tech talent remains constrained, the greater accessibility of higher quality offshore talent and more local web and mobile development specialist firms like Pivotal and East Agile enter the ecosystem.  Furthermore, startups and companies in general are going to become much leaner, as I alluded to when I posed the questions whether a billion dollar company can be run by twelve people.

Does this mean that everything can be outsourced?  Clearly, that is not the point.  The value of outsourcing is to bring scale, speed and cost efficiency without the challenges of taking on full time employees, particularly technical staff.  It is imperative that entrepreneurs to not simply throw work over the wall, but to be fully engaged with the outsourced team as if they were employees.  The founding team should have a solid tech background, just like they would have for the business in areas such as marketing, financing, law, etc.

So where can outsourcing work?  Here are some examples of things that are obvious (and some unobvious) areas for outsourcing.

• Outsourcing of infrastructure – The cloud has not only been a boon for developers to quickly build web apps, it is allowing many of these startups to push off the need to maintain server farms and networks.  This is a huge savings in terms of capital and manpower.  Of course, the largest tech companies still employ large internal IT teams, but I see this as a legacy rather than the de facto standard iof the future.
• Outsourcing of non-essential functions – Companies of all sizes use outsourced HR and accounting.  Some rather large organizations, including the US Transportation Security Administration with over 55K employees, completely outsource the HR function.  The growth and maturity of the business process outsourcing industry is such that most internal company functions such as vendor management, purchasing, warehousing, etc. can be easily handled by outside companies.
• Outsourcing scaling of functions – Some core function such as sales and marketing can often benefit from added scale through outside firms.  There has been an increased use of outsourced sales organizations in recent years as the cost has gone down.   Already most startups outsource PR activities and some marketing functions such as copywriting and social media management.
• Outsourcing projects – Many one-off or non-critical projects can be handed off to contractors.  Copywriting, collateral generation, graphic design work are all common examples.  However even technical projects can be farmed out, particularly when the expertise is hard to come by such as with mobile development.
• Outsourcing management – Sounds odd at first, but some management can in fact be outsourced.  This is fairly common for the CFO position in mid-stage startups, where a full-time CFO may not make sense, but you still need someone to manage specific activities such as fundraising or mergers related activities.

The most important thing is to not get discouraged about all the anti-outsourcing talk.  Figure out what makes sense to outsource and if there is a compelling advantage in doing so.  If the benefit is there, go ahead and outsource.